The liability regime taps into the Slovenian NCB’s own funds/general reserves to fund victims.

in its cancellation decision. The CJEU found that the prohibition of monetary financing did preclude liability regime 2.22

The CJEU substantiates her view using several reasons. Primarily by stating that the Slovenian legislation envisaged a social and political objective for liability regime 2: to prevent the effects of the cancellation of financial instruments from forming an excessive burden on natural persons with a modest income.23 This all whilst liability regime 2 is a measure which – as a reorganisation measure – aims to guarantee stability of the financial system. Therefore, a payment obligation from the National Central Bank’s own funds towards these natural persons exists as a result of political choices made by the legislature. This regime must therefore be seen as leading the Slovenian Central Bank to be responsible for financing of public sector obligations under national legislation art.1(1) sub b (ii) Council Regulation No 3603/93 .24

Lastly, the Slovenian Government argues that the prohibition of monetary financing should not apply to this regime because the regime prescribes the National Central Bank to transfer profits made by it to victims instead of to the Republic of Slovenia. This argument does not succeed because the liability regime relies not only on a different allocation of Central Bank profits but also on a levy on the general reserves of the bank or a loan from the Republic of Slovenia.25

Preliminary question 3: National Central Bank Independence

According to the concept of independence, NCBs are ensured to be in a position to carry out the tasks conferred upon them independently.26 The principle of independence is a general principle and is even divided into different categories of independence: functional independence, institutional independence, personal independence and financial independence.27 When speaking of independence in this context, the CJEU refers to financial independence, according to which the independence of an NCB would be jeopardised if it could not autonomously avail itself of sufficient financial resources to fulfil its mandate (e.g. to perform tasks that fall with the ESCB scope).28 The independence principle is mentioned in several provisions as well as case law. For instance, art. 130 TFEU and art. 7 of the Protocol prohibits NCBs and the ECB from taking instructions from any Member State governments or EU institutions. Art 282(3) TFEU, on the other hand, is only addressed to the ECB and states that the ECB is to be independent in the management of its finances.

In substantiating its judgement that the liability regime breaches the principle of independence by exposing the Slovenian Central Bank to political pressures, the CJEU finds that the independence principle doesn’t apply in the same way to an NCB exercising a power that is within the ESCB scope (e.g. monetary policy implementation)29 versus an NCB that exercises a power assigned to it by national law – such as liability regime 1 – according to art. 14.4 of the Protocol.30

In principle, the exercise by a national central bank of a power that does not fall within the ESCB scope does not infringe the independence principle so long as the national provisions do not undermine the NCB’s ability to independently carry out tasks that do fall within the ESCB scope.31 When applying this to the current case, the CJEU finds that the exercise of monetary policy32 - an ESCB scope power – is endangered by the exercise of the liability regime under Slovenian law. The reasons for this are that:33 i. The liability regime taps into the Slovenian NCB’s own funds/ general reserves to fund victims. It is exactly these funds that are detrimental to offsetting losses suffered by the NCB resulting from monetary policy operations under art. 18 of the Protocol and; ii. As the liability regime draws from its own funds, it could lead – in the event where allocation of profits is insufficient – to the Slovenian Central Bank negotiating with/seeking consent of national (political) authorities by taking a loan for funding in order exercise tasks conferred upon it which fall under the ESCB scope and; iii. It is not apparent that the liability regime will ensure the NCB to have sufficient own funds to carry out its tasks within the ESCB scope in an effective manner.

C) CONCLUSION AND COMMENT ON NCB LIABILITY

With this judgement the CJEU deems NCB liability regimes EU-proof: allowing NCBs to be liable for damages caused by the exercise of powers conferred upon them under national law, so long as it (a) does not breach EU law (e.g. prohibition of monetary financing, NCB independence), (b) hinders the exercise of a conferred power within the ESCB’s scope (e.g. monetary policy) and (c) provided that the liability is only established if claimants carry the burden of proof as to the breach of due diligence (and sufficiently prove this) given the specific circumstances in which complex issues have to be assessed. The CJEU’s Judgement in C-45/21 is fully in line with the ECB’s Governing Council’s Opinion on financial independence (CON/2021/7) from February 26th 2021.34 The ECB has constantly held that the overall independence of the NCB concerned would be jeopardised if it could not autonomously avail itself of sufficient financial resources/inadequate equity to perform the ESCB-related tasks required of it under the Treaty and the Statute of the ESCB. Although the CJEU only used monetary policy35 as an example of an ESCB-related task which could be endangered as a result of insufficient NCB funds caused by the ZPSVIKOB liability regime, one could think of many more provisions that fall within the ESCB’s scope of which compliance could be endangered. Some examples are: a call by the ECB to the NCB to contribute to the ECB’s capital and to make further transfers of foreign reserves,36 or a Governing Council decision that offsets an ECB loss against monetary income of NCBs.37 Furthermore, in the case where the national competent authority (hereafter NCA) is also the NCB, and where the former has an independent decision-making body for supervisory matters, such as for Slovenia, financial independence also means that decisions made by the NCA should not endanger the NCBs finances. In this case, the NCB should have the ultimate control over decisions made by the NCA.38 But even if all of this is unable to prevent the NCB’s net equity from becoming less than its statutory capital, the Member State would ultimately be required to inject sufficient capital (at least up to statutory capital) so as to comply with the principle of financial independence and to consequently ensure the effective exercise of powers conferred upon the NCB by the Treaty and the Statute.39 Where it is self-explanatory that national law (such as NCB liability regimes) has to be aligned with EU law, the procedural restriction of proving a due diligence breach by the NCB is more interesting. It seems that the bar for actually proving a due diligence breach – thus establishing NCB liability – is set quite high. This restriction is evidently emphasised by the CJEU when stating that the due diligence breach has to be assessed under a specific crisis situation which requires rapid assessments of complex issues. Here CJEU does a great job at balancing the interests at stake: on the one hand, shielding NCBs from vexatious litigation whilst, on the other hand, keeping the door open for claimants to receive compensation to cover damages from wrongful NCB decisions.

1 CJEU, ECLI:EU:C:2022:670, 13-1-2022

2 It’s decision of October 19th 2016.

3 Law on the procedure applicable to the judicial and extra-judicial protection of former holders of eligible bank liabilities or Zakon o postopku sodnega in izvensodnega varstva nekdanjih imetnikov kvalificiranih obveznosti bank.

4 No creditor/holder of financial instruments may be worse off (i.e. suffer greater losses) in a cancellation of financial instruments scenario compared to a scenario where the issuer of the financial instruments goes into liquidation.

5 Par 23, C-45/21, ECLI:EU:C:2022:670

6 Par 24, C-45/21, ECLI:EU:C:2022:670

7 Ustavno sodišče.

8 Zakon o bančništvu

9 Par 79, C-45/21, ECLI:EU:C:2022:670

10 Recital 2 and art.1(1) sub a of Council Regulation No 3603/93 defines an ‘overdraft facility’ as: any provision of funds to the public sector resulting or likely to result in a debit balance.

11 Art.1(1) sub b of Council Regulation No 3603/93 defines ‘other type of credit facility’ as: (i) a claim existing against the public sector existing at January 1st 1994, except for fixed maturity claims acquired before that date (ii) any financing of the public sector’s obligations vis-à-vis third parties (iii) without prejudice to art 123(2) TFEU any transaction with the public sector resulting or likely to result in a claim against that sector

12 Par 64, C-45/21, ECLI:EU:C:2022:670

13 Art.1(1) sub b (ii) of Council Regulation No 3603/93

14 Par 67, C-45/21, ECLI:EU:C:2022:670

15 Par 74, C-45/21, ECLI:EU:C:2022:670

16 Par 69 – 70, C-45/21, ECLI:EU:C:2022:670

17 Par 71, C-45/21, ECLI:EU:C:2022:670

18 Par 73, C-45/21, ECLI:EU:C:2022:670

19 Par 75, C-45/21, ECLI:EU:C:2022:670

20 Par 76, C-45/21, ECLI:EU:C:2022:670

21 Par 77-78, C-45/21, ECLI:EU:C:2022:670

22 Par 90, C-45/21, ECLI:EU:C:2022:670

23 Par 83 – 84, C-45/21, ECLI:EU:C:2022:670

24 Par 85, C-45/21, ECLI:EU:C:2022:670

25 Par 88,89, C-45/21, ECLI:EU:C:2022:670

26 This is a principle which is codified in many provisions such as art. 282(3) TFEU as well as in jurisprudence: see also the Par 46 Rimsevic judgement of 26 February 2019, Rimšēvičs and ECB v Latvia, C-202/18 and C-238/18, EU:C:2019:139

27 ECB Convergence Report 2022, Chapter 2.2.3

28 ECB Convergence Report 2022, Chapter 2.2.3

29 Art. 127(2) TFEU and 3.1 the Protocol on the ESCB and the ECB Statute

30 Par 95, C-45/21, ECLI:EU:C:2022:670

31 Par 96 – 97, C-45/21, ECLI:EU:C:2022:670

32 Art. 127(2) TFEU and 3.1 the Protocol on the ESCB and the ECB Statute

33 Par 98 – 105, C-45/21, ECLI:EU:C:2022:670

34 ECB Governing Council Opinion (CON/2021/7)

35 Art. 127(1) TFEU

36 Art. 28(1) jo 30.4 the ECB and ESCB Statute

37 Art. 33.2 of the ECB and ESCB Statute

38 ECB Governing Council Opinion (CON/2021/7), p.4

39 ECB Convergence Report 2022, Chapter 2.2.3, fourth paragraph of the section on ‘Financial independence’.